Could Cash for Clunkers return? Automakers crank up medical equipment production, auto sales are down and more people in the industry have died from the coronavirus. That and more in The Morning Shift for April 3, 2020.
The economic collapse caused by the worldwide coronavirus pandemic has sunk the automobile industry into a crisis. Sales have dropped precipitously due to lack of demand as people stop driving and feel uncertainty in their economic futures. Car production has come to a halt as assembly line workers stay in their homes to avoid spreading the virus and a number of automakers are laying off and/or cutting their workers’ salaries to stay afloat.
When vehicle production can start back up, and people get their jobs back and begin transitioning from a life of seclusion back into a normal life of automobility, Ford is going to want a government program to jumpstart car sales. This is according to a Bloomberg interview with Ford’s VP of U.S. Marketing, Sales and Service, Mark LaNeve, who told the news site:
“We think some level of stimulus somewhere on the other side of this would help not only the auto industry and our dealers, which are a huge part of our overall economy, but will help the customers as well...We’re in discussions about what would be the most appropriate.”
LaNeve mentions Cash For Clunkers, also known as the “Car Allowance Rebate System” as a potential model on which to base this stimulus. Cash for Clunkers, you may recall, involved the government providing consumers with significant rebates on new, more efficient cars, if those customers turned in old, inefficient cars to be scrapped. From Bloomberg:
Those discussions are internal at Ford for now, but are eventually expected to involve the federal government, LaNeve said a day after automakers reported their slowest monthly pace of U.S. sales in a decade. One model being considered is the 2009 “cash for clunkers” program that helped stimulate auto sales following the global financial crisis by encouraging drivers to turn in an older car in exchange for thousands of dollars toward buying a new one.
“Cash for clunkers was very effective at that time,” LaNeve said. “It would be nice to think we could have something equally as effective for 2020 when we get out of this because it was a great program.”
Car and Driver reached out to a Ford rep, who had this to say about the topic:
A Ford spokesperson contacted by Car and Driver, while stopping short of naming a specific type of program, said the automaker is “encouraging Congress to look at a variety of ways to drive job creation, increase demand, support customers, and provide long-term stability for the entire auto ecosystem.”
Whether Cash For Clunkers was truly a “great program” as LaNeve told Bloomberg, is up for debate, and depends on whom you ask. Some have criticized the program for simply “pulling forward” car sales that were going to happen anyway, some criticize the effects that removing cheap old cars from the market had on the working class, many car enthusiasts malign the loss of classic iron, some have criticized the overall environmental impact of the program, and still others think it was too costly. There are also plenty of studies out there that show both environmental and economic benefits of the program as well, but we won’t get into those details now. Instead, we’ll focus on the fact that there are a number of players in the American economy who are considering the program’s return.
Here’s what U.S. Representative Debbie Dingell said about the return of a Cash for Clunkers-like program according to Bloomberg:
“It’s out there as an idea along with many other ideas,” she said. “We’re working with the entire ecosystem of automakers, workers, their unions, suppliers, dealers and consumers.”
The story also quotes a Morgan Stanley analyst, who describes why a stimulus s so important for the auto industry:
The industry has sold more than 17 million cars and trucks the last five years
“Without auto industry-specific stimulus, we are prepared for the right side of the ‘v’ recovery to be as low as 11 million or 12 million units for a while,” Adam Jonas, an analyst at Morgan Stanley, wrote in a report Monday.
Automakers have been hard at work, using their manufacturing expertise to alleviate the shortage of masks and ventilators so dearly needed by hospitals around the world. We’ve discussed how GM plans to make 10,000 ventilators a month by the summer, we’ve looked at Ford’s interesting respirator setup that uses a seat cooler blower motor, plus FCA has announced plans to make 1 million masks per month, Lamborghini is also making masks, and Honda is producing face shields. The list goes on.
It’s a great combined effort by the auto industry, and we keep learning more and more each day about what automakers are doing to help out. For example, FCA announced today that it’s working with an Italian company that makes medical equipment to increase production of electrovalves found in ventilators, which are needed to help some people affected by COVID-19 breath. From FCA:
FCA, with the support of holding company Exor and Ferrari, has joined forces with Siare Engineering International Group located near Bologna, Italy to provide additional resources and know-how to help scale up its response to the crisis. For over 45 years, Siare has been a specialist in the design and production of electromedical equipment for export to customers around the globe.
The FCA Manufacturing Engineering team working at the Group’s plant in Cento, Italy – where high-performance engines are produced for the global market – has worked rapidly to produce the first group of electrovalves, which are the beating “heart” of the ventilators urgently needed by hospitals in Italy and other countries.
A team of around 20 FCA specialists, in collaboration with technicians from Siare, analyzed the supply flow and assembly process for electrovalves at the Cento plant, in addition to solutions for increasing output at the Siare facility with integration of the electrovalves produced by FCA.
According to the press release, the electrovalve supply increase should allow Siare to reduce ventilator production time by “as much as 30-50 percent,” according to the Italian medical equipment manufacturer.
A week ago, we learned via Automotive News that a fourth unionized FCA employee had died as a result of COVID-19. These deaths were in addition to the passing of a non-union employee working at FCA’s engineering headquarters in Auburn Hills. Now, seven days later, the confirmed death number has risen from five to eight, per the Detroit Free Press, who writes:
A Fiat Chrysler Automobiles employee diagnosed with the novel coronavirus who worked at the MOPAR national parts distribution center in the packaging department in Center Line has died, the UAW confirmed Thursday.
It is the second death of someone who worked at that location and the eighth FCA worker publicly confirmed to have died after being diagnosed with the highly contagious respiratory illness.
The Detroit Free Press breaks down all UAW COVID-19 death confirmations since March 22, showing eight FCA employees and four Ford workers:
- An FCA worker from Sterling Heights Assembly Plant
- An FCA worker from the Kokomo Transmission Plant in Indiana
- Two FCA workers from Warren Truck
- An FCA worker from FCA Transport in Sterling Heights
- Two FCA workers from MOPAR parts distribution center in Center Line
- An FCA non-union employee based at the Warren Tech Center and working at company headquarters in Auburn Hills
- A Ford worker in skilled trades from the Ford Data Center in Dearborn
- A Ford worker from Dearborn DIversified Manufacturing Plant in Dearborn
- A Ford worker from Dearborn Stamping
- A Ford worker from Michigan Assembly in Wayne
Automotive News is keeping an updated list of COVID-19-related deaths in the auto industry.
Automakers had planned to re-start vehicle production at certain plants starting in April. Ford, for example, had set April 14 as their target date for “several key U.S. plants,” but a few days ago decided to “[postpone] startup dates, which will be announced later.” GM, who had aimed to re-start production before the beginning of April, has suspended production indefinitely.
Now, per Reuters, we have news that Ford’s plant operations in Europe will remain deactivated until May. From the news site:
Ford Motor Co (F.N) on Friday extended the temporary suspension of vehicle and engine production at most of its European manufacturing sites to May 4.
“Ford’s production restart plans depend heavily on the pandemic situation in the weeks ahead, national restrictions in operation at the time, supplier constraints and the ability of our dealer network to operate,” the company said in a statement.
May is a long way off. To go that long without producing vehicles is a big deal.
General Motors Co’s (GM.N) vehicle sales in China fell 43.3% in the first three months of 2020 compared with the same period last year, the company said on Friday, as the coronavirus pandemic reduced demand in the world’s biggest auto market.
The pandemic has killed over 3,300 people in China, the world’s second-biggest economy, and caused the government to lock down parts of the country to contain the spread. The travel restrictions contributed to a 79% drop in overall auto sales in February after a 19% drop in January.
The story notes that GM dealers are resorting to “unusual advertising campaigns” including a “makeup-promoting personality to tout car leasing.”
Struggling General Motors sells its financing arm (which later became Ally Financial) to Cerberus (the company that bought Chrysler—which went into bankruptcy shortly thereafter—from DaimlerChrysler in 2007). From CNN:
General Motors finally announced an agreement Monday to sell a majority stake in GMAC in a deal meant to raise cash and let its profitable finance subsidiary shed its junk bond status.
The deal will bring troubled GM about $14 billion over time, including the $7.4 billion purchase price and a $2.7 billion distribution from GMAC itself. The buyer is a group led by a hedge fund called Cerberus Capital Management and the private equity arm of Citigroup.
If so, why? If not, what are the things you’re trying to avoid?